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New Street: A Sprint/T-Mobile tie-up may not be so painful for tower companies

A merger between T-Mobile and Sprint may not hurt Crown Castle and American Tower as much as some think – at least not in the near future – New Street Research analysts said this morning.

A tie-up between the nation’s two smallest tier-one carriers has long been rumored as a strategy to enable them to better compete with Verizon and AT&T. Indeed, SoftBank CEO Masayoshi Son noted again this week that his company had hoped to acquire both carriers and merge them before regulators signaled their disapproval.

But speculation of an eventual merger has ratcheted up with Donald Trump’s surprising election triumph this week, leading investors to boost shares of both companies earlier this week. While a consolidated carrier market may not be good news for tower companies, New Street said recent information from Crown Castle and American Tower indicates it wouldn’t be disastrous.

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“The revenue exposure from overlapping sites is modestly lower and lease durations are two years longer than we previously thought,” New Street analysts wrote in a research note to investors. “The overall impact is that site decommissioning should only drive 3 percent to 8 percent downside for the sector (~60 percent of what we had previously estimated), with Crown Castle remaining most exposed.”

That note followed an announcement by American Tower earlier this morning in response to talk of a possible merger between T-Mobile and Sprint. American Tower said it has separate leases for antenna space with both carriers on the same site at roughly 5,500 sites that it owns or operates.

“The revenue generated from each of Sprint and T-Mobile USA on these sites represented approximately 4 percent of American Tower’s consolidated property revenues for the quarter ended September 30, 2016,” the company said. “The average remaining non-cancellable current lease term on these sites with Sprint and T-Mobile USA is approximately five years.”

Such lease agreements are longer than had been expected, New Street analysts said, and migrating customers to a common network might take even longer. So a combined carrier might maintain as many sites as the nation’s two largest operators over the next several years.

“We assume (T-Mobile and Sprint) would decommission 23,000 overlapping sites, leaving them with (roughly) 80,000, a similar range as our estimates for AT&T and Verizon by 2020,” according to New Street. “At the same time, the NewCo would need to negotiate new amendments to deploy AWS and 700 MHz spectrum on legacy Sprint sites, and 800 MHz and 2.5 GHz spectrum on legacy T-Mobile sites.”